Did you know there is hidden software on millions of smartphones that records every interaction a user has with the device, as well as his location, then sends that information off the phone in a totally unencrypted way without letting the user know?

Yep, that’s right, the tracking software is from a company called Carrier IQ, according to the WSJ. Several wireless carriers, including Sprint Nextel Corp., AT&T Inc. and T-Mobile USA, have the Carrier IQ tracking software installed on their devices and users cannot uninstall it. Each said they use the tracking technology to monitor their networks and improve service.

The tracking software was discovered by a security expert, Trevor Eckhart, and revealed to the public through blog posts and video on You Tube. Eckhart, using an HTC cell phone with an Android operating system, shows the software is not transparently visible to consumers, and is shown tracking actions such as when buttons are pressed and collecting personal data such as the content of text messages.

This has raised huge privacy concerns, as more and more customers are becoming aware of the situation. As a result, a lawsuit was filed against AT&T Inc. (NYSE: ATT), Sprint Nextel Corp. (NYSE: S), Apple Inc. (NASDAQ: AAPL) and T-Mobile USA by mobile phone customers who claim that Carrier IQ Inc. tracking software installed on their phones violates U.S. wiretapping and computer fraud laws. The case is Pacilli v. Carrier IQ, U.S. District Court, District of Delaware (Wilmington) and was filed last week, said Bloomberg News.

AT&T and Sprint, the second- and third-largest U.S. wireless providers, said in e-mailed statements on Dec. 1 that the software data is used to improve service performance. Apple stopped supporting Carrier IQ in most products and will remove it completely in a future software update, Natalie Harrison, an Apple spokeswoman, said in a Dec. 1 e-mail.